AFA population stagnant as new law looms

The number of authorised financial advisers (AFAs) has remained static over the last two years, new data from the Financial Markets Authority (FMA) reveals.

As at January 1 this year the FMA lists 1,861 AFAs – exactly the same figure as in February 2016, according to an Investment News NZ study (IN NZ) produced that year.

The ‘Last of the AFAs’ report found the number practising advisers in the AFA population likely stood in the low 1,600s – at most. In a review of the Financial Advisers Act in 2016 the Ministry of Business, Innovation and Employment (MBIE) reported 200 or more AFAs “did not provide financial adviser services to clients”.

“Reasons for this were varied, and included those taking leave from the industry, and those who had moved into compliance roles,” the FAA review paper says.

AFA numbers have essentially stalled since the FAA regime – which singled out investment advisers for higher disclosure standards – came into force some two years after the 2008 act was passed. From a peak of just under 2,000, the AFA population has hovered around the 1,800 mark.

However, as the 2016 IN NZ study shows, the apparent stable AFA population masks turbulent undercurrents including a reasonably high turnover of individual advisers.

The IN NZ analysis found “311 AFAs (or just over 16 per cent of the total) handed in their badges since 2013 as 277 new advisers gained the formal classification”.

“Over the same period, almost 280 AFAs changed employer – either shifting between entities or launching into self-employment,” the report says.

The FAA regime – and with it the AFA designation – set to be dismantled this year under the in-transit Financial Services Legislation Amendment Bill (FSLAB). In place of the current three-tier system, FSLAB will establish two classes of adviser – ‘financial adviser’ and ‘nominated representative’ – with both subject to an over-arching, yet-to-be-finalised, code.

The new legislation also replaces individual AFA registration with entity licensing.

According to the Parliament website: “All those giving financial advice to retail clients will also be required [under FSLAB] to provide advice only where competent to do so, and be subject to a code of conduct that sets minimum standards of competence, knowledge, skill, ethical behaviour, and client care.

“While similar requirements exist under the FA Act, they only apply to authorised financial advisers who are a small subset of those who give advice…”

However, it is understood the new legislation – under the aegis of Commerce Minister, Kris Faafoi – may prompt some veteran AFAs to exit the industry.

FSLAB received its first reading late last year and is now set for the Select Committee stage set down for this June. Submissions for the Select Committee hearing must be in by February 23.